Sam Waksal: I Was Arrogant

Former CEO Blames His Downfall On Arrogance

Of all the white-collar criminals who've been in the news over the past 18 months, none of them has received more attention than Dr. Sam Waksal.

An immunologist turned entrepreneur, Waksal developed a promising cancer drug, engineered the biggest deal in the history of biotechnology, and then self destructed in an insider trading scandal that also led to the indictment of one of his most famous friends: Martha Stewart.

This past summer, Waksal became the first CEO convicted in what has become a white-collar crime wave, and the first to go to prison - for seven long years.

But before he went away, he told his story to Correspondent Steve Kroft in his first interview after his arrest.
So how did Waksal get into this mess?

"It certainly wasn't because I thought about it carefully ahead of time," says Waksal. "I think I was arrogant enough at the time to believe that I could cut corners. Not care about details that were going on and not think about consequences."

Two years ago, Waksal was one of Wall Street's men of the moment. As the CEO of ImClone, he had just sold an interest in a new cancer drug called Erbitux to Bristol Myers for $2 billion. Everyone expected that the Food and Drug Administration would soon approve the drug.

But three months later, Waksal learned from a Bristol Myers executive that this wasn't going to happen. The FDA was refusing to consider the Erbitux application -- not because the drug didn't work, but because the data was insufficient. New clinical trials would have to be conducted, and the price of ImClone stock was going to plummet.

"What happened was that Sam Waksal did something very, very stupid. He told his daughter to sell her shares," says Waksal. "Thinking that the price was about to go down."

Waksal admits he tried to sell 79,000 – about $5 million worth - of his own shares: "I had millions of shares at the time. And transferred those shares to Alisa thinking that if she sold them that was okay, I wasn't doing the selling."

Did he know that the SEC routinely checks the names of relatives of stock traded when there's a big drop?

"Do I know that, when I think about it? Absolutely," says Waksal. "Did I think about it at the time? Obviously not. I just acted irresponsibly."

In fact, Waksal didn't think he was going to get caught: "I was silly enough to believe that because it was such a de minimus (sic) amount of holdings. And because I actually believed that we could rectify the situation with the FDA very quickly, I didn't think I was going to get caught at all."
At the time, Waksal was a very wealthy man, at least on paper. He had made $60 million in the year 2000, and more than $70 million in 2001. But he led an extravagant lifestyle, and according to friends, felt a need to surround himself with powerful successful people – to be considered a player.

His Soho townhouse was lavishly furnished with a collection of important modern art, and his expenses approached a $1 million a month, much of it to service a $50 million debt he had incurred buying ImClone stock on margin.

So, when the price of his stock went down, so did his net worth. And he told 60 Minutes that he had some short-term capital needs.

He said the first time he knew that he was in trouble was when the SEC sent a notice saying they wanted to interview him. He eventually met with them, but he admits that he was less than honest with them. "Another mistake," he says.

By early 2002, word leaked that the government announced it was investigating trades by Waksal, his father, his daughter, and one of his best friends, Martha Stewart, who sold 4,000 shares of ImClone (worth $230,000) the day before the bad news broke.

Waksal said that he was asked about Stewart a lot in his meeting with the SEC and the Justice Department. But did he get the sense that they wanted Stewart?

"Instead of me? No, I think they liked that they had me, and I think that, I got the sense that, if they could have, if they could have Martha, they would be unbelievably happy campers," says Waksal, who made it clear to the federal government that he didn't give Stewart inside information. "Whatever happened with Martha did not happen because she spoke to the CEO of ImClone. Period. She never did. Therefore, I didn't give Martha Stewart insider information. Period."

In fact, he says that Stewart called him after she sold her shares to ask him what was going on at ImClone: "Stock was dropping that day. There were millions of shares being sold. The rumor was out there on the street. I didn't return Martha's call."

But with Martha Stewart's name attached to the scandal, Waksal found himself getting all the attention he once craved -- only it was the wrong kind and at the worst possible time.
The Justice Department called it the summer of fraud. Enron and WorldCom had imploded. Millions of Americans had lost their life savings, and they were looking for blood.

"I was there. I was just right in front of their sights. And I was easy," says Waksal. "Because mine wasn't complicated. There were no accountants and billions of dollars involved. It was real simple."

What was his worst day?

"The day I was arrested was a horrible day in my life," he says. "It is very difficult for someone who thinks about himself as someone who does good things for society to be led away, in handcuffs, and thought about as a common criminal."

"Did I know that I had committed an illegal act? Yeah, I knew. I tried to rationalize beyond rationality that I hadn't," he adds. "It was sort of playing with linguistics. But I knew."

"It was incredibly dumb, obviously, just try and dump that much stock on the eve of an important decision. It was like running around in your underwear, in broad daylight," says U.S. attorney James Comey.

And Comey says the insider trading was just the beginning of Waksal's problems. When his office began looking into other aspects of Waksal's professional and personal life, they came up with a whole raft of additional charges.

"There's that great event in baseball they call the cycle. Right? You hit a single, a double, a triple and a homer in the same game," says Comey. "There is no cycle in white-collar crime. But if there were, he'd have hit it."

Besides insider trading, Waksal was charged with telling his father and his daughter to lie for him, and directing an ImClone employee to destroy documents. He also forged the signature of a corporate officer to fraudulently obtain a bank loan, and he avoided more than $1 million in New York State sales tax by shipping $15 million in artwork he'd bought to an ImClone address in New Jersey.

"I could sit there at the same time thinking I was the most honest CEO that ever lived. And at the same time I could glibly do something and rationalize it because I cut a corner, because I didn't think I was going to get caught," says Waksal.

"And who cared? Look at me. I'm doing '"X,' so what difference does it make that I do a couple of things that aren't exactly kosher?"

In fact, Waksal had a long history of ethical lapses, reckless behavior and embellishing the truth. He had been dismissed from a number of academic and research positions for questionable conduct. One former colleague said "cutting corners for Sam was like substance abuse. He did it in every aspect of his life, throughout his entire life."

"One of my great faults is I refused to deal with the everyday details that people have to deal with to make sure mistakes aren't made," says Waksal. "And I think, in that way, there may have been an arrogance where I didn't have to deal with details - that these details were meant for other people, not for me."
In the past, someone had always been there to give Waksal the benefit of the doubt. But this time, there was no one to save him from himself. He pled guilty to six out of 13 counts -- but not those involving his father.

He says there wasn't a negotiation process. But did the federal government use Waksal's daughter, his father and Martha Stewart to try to put pressure on him?

"I think that the federal government does anything it can to win its cases. And if I were a prosecutor, I probably would, too," says Waksal.

"You know, I think Martha can take care of herself. But to use my daughter even to intimate that they would charge her because she tried to protect her dad was irresponsible because it's just wrong. Why do it? What do you gain? Who are you deterring? What, my 80-year-old father who is, you know, a hero, who never did an illegal thing in his life? I wasn't going to let that happen."

"If he is come to the view that he is protecting his father and his daughter, that's a noble view," says Comey. "I wish he had thought of that before he sent them in to the SEC to lie for him. And then he took the Fifth Amendment, which I didn't think was particularly noble. If he's come around to that view, that's a good thing from a human perspective."

"I don't disagree with the U.S. attorney. It was not a noble situation at that time," says Waksal.

What were his sins?

"My sins were getting a daughter involved in something that she knew nothing about. That's a horrible thing for a father to do," says Waksal. "That's a sin - putting my employees in a situation where the company that they work for and love was being mentioned in the same breath as Enron and WorldCom. And I look at that in many ways as a deplorable sin."

But Waksal draws a distinction between what he did and what those at WorldCom and Enron did: "I have a company where not one person has lost their job. Where no one's 401K has been hurt. So, is it different than, than WorldCom and Enron? I think so."

"I know I did something that was wrong. And I know that I would have, at another point in time, gone to court," admits Waksal. "And I doubt that the U.S. attorney, absent other situations, would have ever taken that case to court. This was done because the U.S. attorney was trying to make an example out of me."

How does Comey respond to that?

"I think part of that's fair. I mean, he is not someone who caused the collapse of WorldCom, for example," says Comey. "But those people are going to get a lot more jail time than he got. The folks who pled guilty in the WorldCom case are looking at in the upper teens to 20 years of jail without parole."

Does the federal government want to send a message that this kind of behavior is not going to be tolerated?

"Part of it, yeah," says Comey. "The reason I exist is for general deterrence. I can't catch every crook. White-collar crooks look at the world, they read the paper, they watch TV. And what we're hoping is that they'll picture Sam Waksal as their hand is shaking to move a column of numbers from here to here, and they'll think, 'Geez, do I want to go to the pokey for seven years?' And they won't do it."

Has it sunk in yet for Waksal that he is going to have to go away for seven years? "I don't think that it's really going to sink in fully until the day I'm there, and even afterwards," he says.

"I'm frightened. I am sad. I'm remorseful and I wish I could turn the clock back and just change certain events at the end of December of 2001."

What has he learned from all of this?

"Never to break the law. Never lie to the U.S. government," says Waksal. "If you've broken the law, don't talk to the U.S. government. But more importantly, I've learned not to be careless and not to be glib about things that you do. Because they can, they can destroy all of the good in one fell swoop. And I, I'm sorry that, that these events had to take place for me to learn that. But, at least I've learned it."

Even in prison, Waksal still has legal problems. His former company is suing him to recover a $7 million severance package. And he is named in more than two-dozen shareholder lawsuits against ImClone.

As for Erbitux, the cancer drug Waksal developed at ImClone, recent clinical trials have confirmed the promising results of earlier studies. It could be licensed by the FDA within the next few months.
  • Rebecca Leung

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